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Volume 7 - Opinions of Counsel SBEA No. 109

Opinions of Counsel index

Assessment review (small claims) (refund - interest) - General Municipal Law, § 3-a; Real Property Tax Law, §§ 726, 734:

The rate of interest applicable to a refund in a small claims assessment review proceeding is one percent per month for fraction thereof) beginning on the ninety-first day after receipt of the hearing officer’s decision by the clerk of the tax district.

We have been asked if interest payable on a refund of taxes in a small claims assessment review proceeding is limited by section 3-a of the General Municipal Law, and from what date interest is calculated.

Subdivision 1 of section 734 of the Real Property Tax Law, which provides for refunds of taxes due as the result of successful petitions for small claims assessment review, may be summarized as follows:

(1) the notice (decision) of the hearing officer to the clerk of the tax district constitutes an application for a refund on behalf of the petitioner;
(2) no interest is due on the refund if payment is made “within ninety days of such decision”;
(3) refunds paid thereafter bear interest at the rate of one percent per month or fraction thereof “for each month or part thereof in excess of ninety days”.

Although section 734 provides a rate of interest equal to 12 percent per year (see item (3) above), it has been suggested that the rate is subject to a limitation under the General Municipal Law. Section 3-a of the General Municipal Law provides, in part, that “the rate of interest to be paid by a municipal corporation upon any judgment or accrued claim against the municipal corporation shall not exceed nine percentum per annum. . .” (as amended by Chapter 681 of the Laws of 1982).

As added by Chapter 594 of the Laws of 1939, section 3-a had established a three percent ceiling on interest due upon judgments or claims against municipal corporations. The material in the Governor’s Bill Jacket of Chapter 594 indicates that the purpose of the statute was to establish a maximum rate of interest to be paid by a municipality where an unspecified rate of interest is allowed by a separate statute. An example of such statute today is subdivision 3 of section 726 of the RPTL, which simply provides that “Interest shall be paid on the amount of any refund made pursuant to this section. . .”. Since no rate of interest is specified, the provisions of section 3-a apply, and the municipality is liable for interest at the rate of no more than nine percent per annum.

However, while section 3-a establishes a maximum rate where no other rate is specified, it does not preclude a higher rate if that higher rate is prescribed by a separate statute. Indeed, the Court of Appeals has considered this very question, holding, without discussion, that the provisions of the Westchester County Administrative Code (L.1916, c.105, §18) requiring the payment of 12 percent interest on refunds in tax certioraries applied to judgments rendered in that County, rather than the general rate of section 3-a (Town of Harrison v. County of Westchester, 18 N.Y.2d 876, 222 N.E.2d 742, 276 N.Y.S.2d 124 (1966), mod. on other grounds, 19 N.Y.2d 860, 227 N.E.2d 405, 280 N.Y.S.2d 592 (1967)). Since section 734 likewise specifies a particular rate of interest, it is our opinion that its rate of 1 percent per month should be applied to small claims refunds, rather than the maximum annual rate of 9 percent otherwise provided in the General Municipal Law.

We are also asked when interest begins to accrue on a small claims refund. In an assessment review proceeding under title one of Article 7, a successful petitioner is entitled to interest upon a refund measured from the date of the payment of taxes upon the challenged assessment (RPTL, §726(2)). In contrast, section 734 provides that interest shall only be paid where the refund has not been made within the ninety day “grace period”, and, as indicated in item (3) of our summary above of section 734(1), that the calculation of interest runs from the conclusion of this period not from the date of payment of the tax which is to be refunded.

Although the “grace period” runs from the date “of such decision”, we are asked whether this actually means the date the hearing officer signs his decision. Read so literally, the statute could produce absurd results (e.g., where copies of the decision are not transmitted to the clerks of the tax districts for months afterwards). We do not believe this was the intent of the Legislature.

A municipal corporation “is not required to seek out those who have claims against it.... It is to be presumed that all proper liabilities will-be paid upon demand” (Taylor v. Mayor, etc., City of New York, 67 N.Y. 87, at 94 (1876)). “[A] claim against a municipality, although liquidated and due at a definite date, does not draw interest until demand has been made for its payment. . .” (Smith v. Board of Education, 208 N.Y. 84, at 86, 101 N.E. 791 (1913)). Section 734 does not provide for docketing of a decision in the manner of a judgment. Thus, the general rule that interest runs from docketing would be inapplicable (see, CPLR §5003). Section 734 does provide, however, that notice of the decision to the clerk of the tax district constitutes an application for refund. In effect, the delivery of the decision becomes the equivalent of the “demand” referred to in the cases cited above, and we believe that the only reasonable interpretation is that interest should run from the date of that demand. It is our opinion, then, that the calculation of the 90 day period which precedes the accrual of interest would run from the date of the receipt by the clerk of the tax district of the hearing officer’s decision rather than from the date the decision is signed.

December 21, 1982

Updated: